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Monday, March 16, 2009

Why America Needs to Bring Its Rich to Heel

Michael
Blim

“This is America. We don’t disparage wealth. We
don’t begrudge anybody for achieving success. And we believe that success
should be rewarded. But what gets people upset – and rightfully so – are executives
being rewarded for failure. Especially when those rewards are subsidized by
U.S. taxpayers.”

Barack
Obama, February 4, 2009

Barack
Obama is a man of eminent good sense, whose strivings for balance and good
measure are made more notable by the absence of similar aspirations among many
members of the American political class. So, when it comes to America’s rich,
he’s inclined to be benign, so long as they behave themselves and are
benevolent in turn toward their fellow citizens. All he asks is for fairness in
the marketplace and in the tax return. And the rich can be source of additional
revenues, a sort of cash cow for the revised welfare state. As he told Joe “the
Plumber” Wurzelbacher during the campaign: “I think when you spread the wealth around,
it’s good for everybody.”

Obama’s
moderation appears lost on America’s immoderate rich. Bonuses flow while the
streams of jobs, credit, and profits run dry. They have driven the American
economy over a cliff, but having clawed back their astonishing share of
America’s income and wealth beginning with Reagan, they are not about to give
it up. Instead, America’s rich are ginning up the corporate lobbies, right-wing
think tanks, and suck-up foundations and charities to do battle for their
privileges. The President during the last days of the campaign took to quoting
the old leftist adage that “power is not going to give up without a fight,”
while now he is content to rule in the name of simple fairness.Even the standard of fairness is
anathema for all but a few of the rich, and they are throwing everything they
have at him to drive the budget back from their corpulent comfort zone. Barack
Obama, you were right: power won’t give up without a fight.

But
to fight simply in the name of fairness is to lose the struggle before even
taking the field. The American rich as a class have no intention of going
gently into that good night. They are the most powerful upper class on earth,
and they have fought very hard to create a global hegemon out of America since the
Second World War. Their goal has been to get higher returns on their money, and
to escape the bill for the economic decline they had caused by outsourcing
capital and labor as well as disinvesting in the American industrial machine.
Starting during the Vietnam War, they sent their capital abroad to build great
multinationals, conquer markets abroad, and generate higher profits for their
investments. They scuttled the American economy a quarter century ago, and
commissioned their bankers out to build great financial behemoths capable of
turning the world’s churning capital flows into profit opportunities for them.

And
so the bankers labored, finding offshore, untaxed caches for the monies of the
rich, and finding ways to valorize their dollar-denominated assets in an era of
low-interest rate bearing investments. New instruments such as hedge funds and
new products such as derivatives became crucial to protecting and increasing
the wealth of America’s rich. They added that extra speculative point or two (or
five) that kept the capital of America’s rich growing. They attracted capital
from abroad that supported what should have been a sagging dollar, increasing
demand for American-held wealth and protecting the dollar holdings of the
American rich.

Yet,
in all, something was going wrong. America’s everyday economy was falling
behind. It could not produce the enormous profits of a China. Its
multinationals prospered to the extent that they could advantage themselves of
the Chinese industrial machine. More than a quarter century after Reagan’s
gutting of the tax code, median family income was the same as it had been under
the Gipper. Life’s essentials such as food, home, and education had become
increasingly costly. America’s consumers needed to borrow, and by loaning them
the money, America’s rich and those to whom they sold their bonds pulled profit
from the jaws of economic decline. The banks, the hedge funds, and the private
wealth handlers, for a time of course, made out. Higher returns meant greater
wealth. Keeping the capital in American dollars and flowing through America’s
financial firms meant that local equity stakes were protected, and American
owners of capital were rewarded handsomely.

Now
the rich are taking big hits, and thanks to them, so are we. They are bending
every effort to get their money back, or rather currently replaced by the U.S.
government. They are seeking to preserve their banks as private enterprises and
resist regulation that would stop them from playing all of the off-book games
that garnered so much money this past quarter century.

They
will fight to keep their tax exemptions and low rates. The progressive tax
rates passed by Herbert Hoover and Franklin Roosevelt, coupled with the wage
and price policies forced upon the country during the Second World War, caused
a significant decline in the amount of personal income the rich commanded of
the American economy. The proportion of income they received dropped to 30% of
the U.S. total in 1941 (it was hovering in the low forties between 1917 and
1940), and there it remained until the mid-seventies. After the Reagan tax cuts
dropped the capital gains tax below that of regular income, the proportion of
the American personal income going to the rich rose to 40% by the mid-eighties,
and remained there through the late nineties.

It
took decades and pitched battles to lower the economic gains, and hence the
economic powers, of the rich. It is the long march that is necessary in
American politics. Roosevelt fought these battles against the “economic
royalists” openly. His program for fairness was under girded by a strategy to
take away the powers of the rich – I am using the plural because economic power
is transformed into political power when groups fight over their well-being –
so that the gap between the rich and the rest of America was narrowed not only
through expanded opportunities but was also accomplished by leveling the
political and social playing field.

Moreover,
leaving the rich powerful invites new economic disasters down the road. After
all, their endless pursuit of profit and power got us into this mess. They
turned the country inside out for their ends, and the breakdown has already
cost us up to one quarter of our national wealth.

In
another column, I will talk about how ordinary Americans’ chances of achieving
economic security and political power are simply no match, unaided by the
state, for the resourceful rich. They are a runaway train. Unless you stop the
train, the rich will carry the American Dream off with them.

Winners
of the American Dream contest like the Obamas too easily become victims of the
belief that if they won, so can countless others. They may privately share
their inner doubts about a system more closed than open, but they take their
personal success as a form of witness to the truth about America. They found
opportunity and made a success. The key then is more opportunity. For them, it
is not necessary propaganda, but an inner belief for which their lives provide
testimony.

At
the same time, their new access to society’s top once again suggests that our
class system is more open than the class systems of other societies, and that
status mobility built on achievement is real. There is no greater believer in
the American Dream than Barack Obama. He believes he is its embodiment. What he
seeks is access to it for all.

Sociology
trumps mythology. We have one of the lowest rates of inter-generational social
mobility of any industrial country. Income and wealth have become more not less
concentrated in the hands of the American rich – all this at a time when some
like the Obamas have achieved a good measure of their dreams in ways that are
not only undeniable but laudable.

Thus,
it still needs to be said to President Obama:

Only
in Frank Capra movies are the rich like everyone else. They have money and
power that in comparison the rest of us don’t.

Economic
opportunity cannot bring about the American Dream. It can only secure a few new
places among the rich for new arrivals.

A
politics of fairness invites failure, both immediately as in the defeat of your
programs, and long term defeat in transforming America into the land of
fairness you seek.

Power,
as you say, won’t give up without a fight. They win by default if you don’t
take them on.